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By XE Market Analysis January 14, 2015 6:55 am
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    XE Market Analysis: North America - Jan 14, 2015

    The dollar has remained the currency of choice. EUR-USD made a fresh nine-year low at 1.1727 on developments that suggest ECB quant easing is all but a certainty now, and the dollar bloc units making fresh lows amid a copper-led decline in commodity prices and equity markets following a world growth downgrade by the World Bank. USD-CAD clocked to a new major-trend peak of 1.2017. USD-JPY dove to a one-month low of 116.65, making this the fourth consecutive down day, during which both the 20- and 50-day moving averages have been breached (the first time spot has been below these markers in three months). The yen was underpinned by the risk-off backdrop, as per the currency's usual inverse correlation to swings in risk appetite.

    [EUR, USD]
    EUR-USD remains heavy after making a fresh nine-year low at 1.1727 on comments from the EU's top court suggested that the OMT (Outright Monetary Transactions) program is likely to be in line with the EU Treaty, which will give legal backing to Draghi's push for sovereign bond QE. Draghi himself also said that the ECB is ready to buy government bonds in an interview with Germany's Die Zeit, and markets are now pretty much fully factoring a QE announcement at the approaching Jan-22 council meeting, with the only question now being what magnitude it will be. EUR-USD remains a sell-on-rallies trade. Resistance is marked at 1.1750-50, support 1.1725-27 and 1.1700.

    [USD, JPY]
    USD-JPY dove to a one-month low of 116.65, making this the fourth consecutive down day, during which both the 20- and 50-day moving averages have been breached (the first time spot has been below these markers in three months). A big fall in copper prices drove other commodities and equity markets lower, apparently triggered by the World Bank cutting its 2015 global growth forecast. This in turn underpinned the yen, as per the currency's usual inverse correlation to big swings in risk appetite. USD-JPY resistance is now marked at 117.50-55, and support is at 116.50. The Dec-16 low at 115.57 provides a focal point for bears.

    [GBP, USD]
    Cable was pushed back under 1.5200 after capping out at 1.5224. Recent gains have largely reflected a dollar correction as Fed tightening prospects become more tentative. We still, however, see that sterling remains in the grip of a bear trend that's been persisting since July last year. An eventual test of 1.5000 still looks likely. The sharp drop in the UK December composite PMI, which at 55.4 is the lowest since May 2013, along with a CPI rate of just 0.5%, will have strengthened the dovish voices at the BoE's Monetary Policy Committee, who are likely to be more patient in making the first tightening of the cycle. The breach of support at 1.5192-93 (recent daily highs) reaffirms a negative technical tone. Cable resistance is at 1.5224-5 and 1.5274 (Jan-5 high), support at 1.5144-50.

    [USD, CHF]
    EUR-CHF continues to trade around the 1.2008-10 mark, with general euro weakness keeping the pressure on. Swiss foreign currency reserves data for December last week showed reserves rose to CHF 495.1 bln (a record) from CHF 462.7 bln in November, which is a consequence of the SNB's intervention on Dec-18. The intervention was additional to the implementation of a negative deposit rate, which was cut to -0.25%, also on Dec-18. The rouble crisis and euro weakness saw EUR-CHF come under pressure in December, and on Dec-16 the cross came within six pips of SNB's the 1.2000 limit. The cross spiked to 1.2096 on Dec-18 on the intervention, along with the announcement of the negative deposit rate. This was the first time that the SNB has intervened in spot since 2012. With the ECB set to pursue QE, the SNB will have its work cut out to defend 1.2000 during the first half of 2015.

    [USD, CAD]
    USD-CAD clocked to a new major-trend peak of 1.2017. A big fall in copper prices drove other commodities and equity markets lower, apparently triggered by the World Bank cutting its 2015 global growth forecast. This in turn weighed on the commodity-correlating dollar-bloc currencies, including the CAD. Lower oil prices have the biggest driver of recent losses in the currency, as it blights Canada's terms of trade. NYMEX oil prices look set for a test of the 2009 low at $40.68, while the August 2009 high at 1.3063 provides a big-picture target for USD-CAD.

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